Government
Type: Special Administrative Region (SAR) of the People's Republic of China, with its own constitution-like charter (the Basic Law).
Branches: Executive--Administration: Chief Executive selected in March 2007; Executive Council serves in an advisory role for the Chief Executive. Legislative--Legislative Council (LegCo) elected in September 2008. Judicial--Court of Final Appeal is the highest court; there are other lower courts.
Subdivisions: Hong Kong, Kowloon, New Territories.
Suffrage: Permanent residents 18 years or over who have lived in Hong Kong for the past 7 years are eligible to vote in certain local elections and for LegCo members.

PEOPLE
Hong Kong's population has increased steadily over the past decade, reaching 7.097 million in 2010. Hong Kong is one of the most densely populated areas in the world, with an overall density of some 6,426 people per square kilometer. Cantonese, the official Chinese dialect in Hong Kong, is spoken by most of the population. English, also an official language, is widely understood and is spoken by more than one-third of the population. Every major religion is practiced freely in Hong Kong. All children are required by law to be in full-time education between the ages of 6 and 15. Starting in 2008, the Hong Kong Government expanded the length of free education it offers from 9 to 12 years. Preschool education for most children begins at age 3. Primary school begins normally at age 6 and lasts for 6 years. At about age 12, children progress to a 3-year course of junior secondary education; at age 15, they can choose to continue with 3-year senior secondary education or to join full-time vocational training. More than 90% of children complete upper secondary education or equivalent vocational education. In 2010, 301,200 students were enrolled in post-secondary education. Over 25.5% of the total population aged 15 and over have attended post-secondary educational institutions.

HISTORY
According to archaeological studies, human activity on Hong Kong dates back over five millennia. Excavated neolithic artifacts suggest an influence from northern Chinese stone-age cultures. The territory was settled by Han Chinese during the seventh century, A.D., evidenced by the discovery of an ancient tomb at Lei Cheung Uk in Kowloon. The first major migration from northern China to Hong Kong occurred during the Sung Dynasty (960-1279). The British East India Company made the first successful sea venture to China in 1699, and Hong Kong's trade with British merchants developed rapidly soon after. After the Chinese defeat in the First Opium War (1839-42), Hong Kong was ceded to Britain in 1842 under the Treaty of Nanking. Britain was granted a perpetual lease on the Kowloon Peninsula under the 1860 Convention of Beijing, which formally ended hostilities in the Second Opium War (1856-58). The United Kingdom, concerned that Hong Kong could not be defended unless surrounding areas also were under British control, executed a 99-year lease of the New Territories in 1898, significantly expanding the size of the Hong Kong colony.

In the late 19th century and early 20th centuries, Hong Kong developed as a warehousing and distribution center for U.K. trade with southern China. After the end of World War II and the communist takeover of Mainland China in 1949, hundreds of thousands of people fled from China to Hong Kong. Hong Kong became an economic success and a manufacturing, commercial, finance, and tourism center. High life expectancy, literacy, per capita income, and other socioeconomic measures attest to Hong Kong's achievements over the last 5 decades.

On July 1, 1997, China resumed the exercise of sovereignty over Hong Kong, ending more than 150 years of British colonial rule. Hong Kong is a Special Administrative Region of the People's Republic of China with a high degree of autonomy in all matters except foreign and defense affairs. According to the Sino-British Joint Declaration (1984) and the Basic Law, Hong Kong will retain its political, economic, and judicial systems and unique way of life for 50 years after reversion and will continue to participate in international agreements and organizations under the name, "Hong Kong, China."

GOVERNMENT AND POLITICAL CONDITIONS
The Hong Kong Special Administrative Region (SAR) is headed by Chief Executive Donald Tsang Yam-kuen, who first took office in 2005. Tsang won re-election in 2007, running against Alan Leong Kah-kit, a senior barrister and legislator for the pro-democracy Civic Party. Tsang's current term ends in 2012. The Election Committee that votes on the Chief Executive (CE) is made up of approximately 800 Hong Kong residents from four constituency groups: commercial, industrial, and financial interests; professionals; labor, social services, and religious interests; and the legislature, the Chinese People's Political Consultative Conference, and the P.R.C. National People's Congress.

In July 2002, the Hong Kong Government implemented the Principal Officials Accountability System, which was designed to make the government more responsive to public concerns. Twelve political appointees, directly responsible to the Chief Executive, run the 12 policy bureaus. Three other senior civil service positions--the Chief Secretary, Financial Secretary, and Justice Secretary--are also filled by political appointments. This system was expanded in 2008 to include one Under Secretary and one Political Assistant position being filled by appointment in each bureau.

Hong Kong remains a free and open society where human rights are respected, courts are independent, and there is well-established respect for the rule of law. However, the right of residents to change their government peacefully is limited by the Basic Law, which provides for the selection of the CE by an 800-person election committee (composed of individuals who are directly elected, indirectly elected, and appointed). The Basic Law provides for the direct election of 30 of the 60 LegCo members. The other 30 seats in the LegCo are elected by 28 functional constituencies (FCs), which represent key economic and social sectors. As of 2008, the 28 FCs represented fewer voters than the electorate in a single geographic constituency. The vast majority of FC voters are represented by the three largest FCs, while the four smallest have fewer than 200 voters. FCs set their own voting rules, with some allowing heads of corporations to vote on behalf of their companies. Persons with interests in more than one sector represented by an FC may be able to cast three or more votes (one in their geographic constituency and one in each FC for which they meet eligibility requirements). In 2007 the CE Election Committee selected incumbent Donald Tsang Yam-kuen, and the P.R.C.'s State Council formally appointed him. In September 2008 voters in six geographic constituencies elected 30 legislators, half of the total LegCo, in elections that were generally free and fair.

In December 2005 the LegCo rejected a Hong Kong Government-proposed package of incremental reforms to the mechanisms for choosing the CE in 2007 and forming the LegCo in 2008. In July 2007, the Hong Kong Government's Commission on Strategic Development issued a Green Paper on Constitutional Development, which set out a myriad of options to reform the CE and LegCo electoral mechanisms, with the "ultimate aim" of universal suffrage as prescribed by the Basic Law.

On December 12, 2007, Chief Executive Donald Tsang submitted a report on the Green Paper to the central government. The report said more than half of local people wanted universal suffrage by 2012, but 2017 might be a more realistic date. In December 2007, the P.R.C. National People's Congress Standing Committee (NPCSC) issued a decision on Hong Kong's constitutional development which, while ruling out universal suffrage in 2012, appears to open the way for Hong Kong to achieve full universal suffrage for the CE in 2017, and full universal suffrage for LegCo in 2020. Any amendments to the Basic Law will require approval by the CE, at least two-thirds of LegCo, and then the NPCSC.

In November 2009, the Hong Kong Government began a public consultation for electing the CE and LegCo in 2012. The government has proposed expanding LegCo to 70 seats (five new geographic seats and five seats to be added to the District Councils Functional Constituency) and to expand the Election Committee for the CE to 1,200. In the spring of 2010, after dialogue between Beijing (through the Central Government Liaison Office in Hong Kong), the Hong Kong Government, and some pan-democrats, a compromise was reached. The five new functional constituency seats would be nominated by District Councilors, but elected by all Hong Kong voters not registered to vote in another functional constituency. This package passed the Legislative Council on June 24, 2010 by a vote of 46 to 13. Public concerns over the roadmap, the future of functional constituencies, and post-2012 constitutional development remain unresolved.

ECONOMY
Hong Kong is one of the world's most open and dynamic economies. In 2010 Hong Kong’s real economic growth rate rose to 6.8%, recovering from the global financial turmoil. Inflation rose gradually to 2.4% in 2010 from 0.5% in 2009. The government introduced several rounds of measures to forestall the risk of a housing market bubble arising from the low interest rates and ample liquidity in the global financial system.

Hong Kong’s economic strengths, including a sound banking system, virtually no public debt, a strong legal system, ample foreign exchange reserves, and an able and rigorously enforced anti-corruption regime, enable it to quickly respond to changing circumstances. The government promotes measures designed to improve its attractiveness as a commercial and trading center and is continually refining its financial architecture. The government is deepening its economic interaction with the Pearl River Delta in an effort to maintain Hong Kong's position as a gateway to China. These efforts include the conclusion of a free trade agreement with China, known as the “Closer Economic Partnership Arrangement” (CEPA), which applies zero tariffs to all Hong Kong-origin goods, gives preferential treatment in 44 service sectors, and increases the scope for using the Chinese yuan in Hong Kong as a trade settlement currency, in savings deposits, and to purchase RMB (renminbi)-denominated bonds. Hong Kong, along with the Macau SAR, is also participating in a new pan-Pearl River Delta trade bloc with nine Chinese provinces, which aims to lower trade barriers among members, standardize regulations, and improve infrastructure.

Hong Kong’s exports of goods and services rebounded strongly in 2010, by 17.3% and 15.0% respectively in real terms, fueled by quicker than expected recovery of the global economy and a massive Chinese fiscal and monetary stimulus program. The unemployment rate in 2010 dropped to 4.3%, the lowest since the fourth quarter of 2008. The Hong Kong Government predicts GDP growth will reach 4% to 5% in 2011.

U.S. companies have a generally favorable view of Hong Kong's business environment, including its legal system and the free flow of information, low taxation, and infrastructure.

FOREIGN RELATIONS
According to Article 13 of the Basic Law, Hong Kong's foreign relations and defense are the responsibility of China. However, Hong Kong is a customs territory and economic entity separate from the rest of China and is able to enter into international agreements on its own behalf in commercial and economic matters. Hong Kong, independently of China, participates as a full member of numerous international economic organizations including the World Trade Organization (WTO), the Asia Pacific Economic Cooperation forum (APEC), and the Financial Action Task Force (FATF). It is an articulate and effective champion of free markets and the reduction of trade barriers.

U.S.-HONG KONG RELATIONS
U.S. policy toward Hong Kong is stated in the U.S.-Hong Kong Policy Act of 1992 and grounded in the determination to promote Hong Kong's prosperity, autonomy, and way of life. The United States maintains substantial economic and political interests in Hong Kong. The U.S. supports Hong Kong's autonomy under the “One Country, Two Systems” framework by concluding and implementing bilateral agreements; promoting trade and investment; broadening law enforcement cooperation; bolstering educational, academic, and cultural links; supporting high-level visits of U.S. officials; and serving the large community of U.S. citizens and visitors.

Hong Kong is active in counterterrorism efforts. Hong Kong has joined the Container Security Initiative and remains an important partner in efforts to eliminate funding for terrorist networks and combat money laundering. Hong Kong participated in the Secure Freight Initiative in a limited capacity from November 2007 to April 2009. Hong Kong has passed legislation designed to bring it into compliance with applicable UN anti-terror resolutions and with most Financial Action Task Force recommendations. In 2010, Hong Kong passed legislation allowing it to adopt the most recent globally recognized standards for exchange of tax information. It has subsequently signed bilateral tax agreements with Brunei, Hungary, Indonesia, Ireland, Japan, New Zealand, Liechtenstein, the United Kingdom, Switzerland, the Netherlands, Austria, and France.

The United States enjoys substantial economic and social ties with Hong Kong. There are some 1,400 U.S. firms, including 817 regional operations (288 regional headquarters and 529 regional offices), and over 60,000 American residents in Hong Kong. According to U.S. Government statistics, U.S. exports to Hong Kong totaled $26.6 billion in 2010. The U.S. trade surplus with Hong Kong was the largest of any U.S. surplus in 2010, owing largely to Hong Kong imports of American aircraft and spacecraft, diamonds, telecommunications equipment, and computer processors. According to Hong Kong statistics, U.S. direct investment in Hong Kong at the end of 2009 totaled about $40.5 billion (2010 figures are not yet available), making the United States one of the largest investors in Hong Kong, along with China, the British Virgin Islands, Bermuda, Japan, and the Netherlands.

Hong Kong enjoys a high degree of autonomy as a separate customs territory, with no changes to borders, staffing, or technology export controls since the 1997 handover. Intellectual property rights (IPR) protection is relatively strong and Hong Kong continues to take steps to improve both its legislation and its enforcement regime. Amendments to improve protections for copyrighted materials were passed in 2007, and additional amendments to protect on-line content are expected in the third quarter of 2011.

The Hong Kong Government maintains three Economic and Trade Offices in the United States. Addresses, telephone numbers, and web sites for these offices are listed below: